Contractors have struggled to prevent the release of confidential information such as proposals incorporated into contracts and unit pricing requested by competitors and others under the Freedom of Information Act (FOIA). While FOIA is an important vehicle to ensure a transparent and honest government, sometimes contractors become collateral damage when their confidential or proprietary information is publicly released.
In order to protect confidential information from disclosure, contractors generally had to demonstrate that the requested information would (1) impair the Government's ability to obtain information in the future or (2) cause substantial harm to the competitive position of the person from whom the information was obtained. Nat'l Parks & Conservation Assoc. v. Morton, 498 F.2d 765 (D.C. Cir. 1974). To satisfy the "substantial competitive harm" companies were "not required to prove that substantial harm is certain to result from disclosure, only that such harm is likely" under McDonnell Douglas Corp. v. Dep't of the Air Force, 375 F.3d 1183, 1187 (D.C. Cir. 2004) (internal quotations and citations omitted) and related jurisprudence. However, in practice, contractors often struggled to convince FOIA officials of the harm that obviously flows from sharing trade secrets and pricing information with competitors.
In a recent decision, the United States Supreme Court expanded protections to companies seeking to withhold documents under FOIA Exemption 4. Sharply critical of the requirement that a contractor demonstrate "competitive harm," the Supreme Court effectively overturned a long line of cases that began with National Parks & Conservation Assn. v. Morton, decided by the DC Circuit in 1974. Instead, contractors will have to meet a two-part test that is more true to statutory language in FOIA: if commercial or financial information (i) is both "customarily and actually treated as private by its owner" and (ii) is provided to the Government "under an assurance of privacy," that information will be shielded from disclosure to the general public under FOIA's Exemption 4. This means that contractors will no longer have to go through the process of establishing "competitive harm," which can be a difficult standard to meet and sometimes requires courts to receive testimony and documents from the party seeking to protect their confidential information.
On the other hand, this "new" standard creates a different hurdle: receiving assurances of privacy from the Government. In light of this new requirement, contractors providing proprietary information to the Government would be wise to devise new strategies to shield their proprietary information from disclosure, such as seeking such assurances during the Q & A of the procurement process, appropriately marking proposal information, and objecting to portions of the proposals being incorporated into contract.
Because of the nature of the test set forth by the Supreme Court, contractors may not be able to take advantage of it in all situations. For instance, lower courts interpreting this decision may find that government assurances must come prior to the contractor providing confidential information. In those instances, contractors may have little recourse when trying to protect already-disclosed information because they no longer can argue competitive harm and also do not have an opportunity to receive assurances of privacy from the Government (which to this point was not required). Nevertheless, it still may be worthwhile for contractors to attempt to receive such assurances after the fact in the event lower courts interpret the Supreme Court's decision to allow post-disclosure assurances.
FOIA Exemption 4 is an important vehicle for the protection of confidential contractor information and the July 15 decision from the Supreme Court has the potential to make those protections even stronger. In order to take advantage of this new protection, contractors would be wise to incorporate a system of seeking assurances of privacy from the Government in exchange for disclosure of that information to the Government.